Fed's Kashkari: Wary about cutting rates
President of the Federal Reserve (Fed) Bank of Minneapolis Neel Kashkari defended Fed Chair Jerome Powell over the Department of Justice criminal investigation and alleged Trump administration pressure on the central bank. In an interview with The New York Times on Wednesday, Kashkari framed the administration's actions as a monetary policy issue and said that interest rates should be held steady this month.
Key quotes
Interest rates should be held steady this month.
If monetary policy is really so tight, we should not see an economy that is exhibiting such resilience.
Wary about cutting rates due to elevated inflation, added that Trump’s tariffs would continue to push up prices over time.
On rates and inflation said entirely plausible that we are sitting here well above our target for two to three more years.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Agustin Wazne
FXStreet
Agustin Wazne joined FXStreet as a Junior News Editor, focusing on Commodities and covering Majors.
